Impact of carbon tax on SMEs

On 1 July 2012, Australians have joined many other countries in putting a price on carbon. Whether we call this a tax, a levy or simply a contribution to cover the cost of carbon pollution, the name is less important. Basically, it’s a pricing mechanism that puts a price tag on every tonne of carbon pollution emitted by the large polluters. All sectors of the community will be impacted to varying degrees (with the large emitters carrying a direct impost) but, if you are a small to medium enterprise (SME), you may wish to know what impact this will have on your business.

Why price carbon?

One consequence of our accelerating level of consumption and appetite for resources is the volume of waste and pollution generated — of which carbon dioxide is a major component — arising largely through the process of converting fossil fuel into energy to power our industrial system.

In a resource-constrained world, a “business as usual” paradigm based on continued growth and demand for resources is unlikely to provide the type of future and quality of life that we wish for our children and their children. It is not sustainable and, sooner or later, the consequences of our actions will catch up with us. Globally accepted national accounts (ecosystems balance sheet) validates this observation with hard data. Earlier this year, the Australian parliament passed the Clean Energy Future Plan, ushering in legislation that will see a price on carbon from 1 July 2012.

The nation’s 500 largest polluters will be taxed $23 on every tonne of CO2 equivalent pollution (“the carbon tax”) released into the atmosphere, directly or otherwise. These companies, which are already known and registered with the government, are required to report on their emissions and buy and surrender to the government a carbon permit for every tonne of carbon pollution they produce.

What is in/out? Carbon pollution from the following sources will be covered under a carbon price: stationary energy (eg power stations); waste; rail; domestic aviation; shipping; marine transport; fuels used for running diesel generators on mine sites; industrial processes; and fugitive emissions. Heavy road vehicle fuel is exempt until after July 2014.

While the Clean Energy Future Plan explicitly sets out the conditions for large emitters and households (the latter as compensation), a range of grant funding options exist for SME manufacturers to encourage investment in low carbon/energy technologies.

How does the carbon tax work?

The carbon tax at its heart is a tool to help manage the cost and consequences of carbon pollution in a manner that motivates the emitter to reduce their carbon emissions by requiring the polluter to pay for the emissions they create, rather than having the community as a whole pay indirectly (which is currently the case). Arguably, this is an important first step toward Australia doing its part in building a clean energy economy.

A carbon price provides incentives to reduce emissions where they are the cheapest, breaking the link between economic growth and growth in pollution.

A two-stage approach from 1 July 2012 applies such that:

  • „the carbon price will be fixed for the first three years (like a tax), starting at $23 per tonne and rising at 2.5% per annum in real terms; and
  • „from July 2015, the price will be set by the market (known as the emissions trading scheme) and will become flexible (not like a tax), at which point the price may rise or fall.

Treasury modeling demonstrates that the cost to Australia of cutting pollution and transforming our economy to cleaner energy sources is very modest.

While a carbon price is not a tax on households or SMEs, there will be flow-on effects, and it is these effects that the government’s Clean Energy Future Plan, through a range of support, offset and other mechanisms, intends to minimise.

Small to medium enterprises will have no direct obligation under the carbon price, and they will not be required to undertake any compliance activity or additional paperwork.

Likely impact on SMEs

The likely impact of the carbon tax on SMEs will be indirect, depending on the level of exposure that the business has to energy-intensive goods and services from its suppliers or through its own products or services and the ability to pass on costs.

Small to medium enterprise manufacturers in energy-intensive industries are likely to feel the effect more than those that are less reliant on energy and transport or are not exposed to international trade.

Possible indirect price increases for SMEs in the following sectors/supply chains could range from:

  • „5–10%: electricity and gas;
  • „0.5–2%: steel, aluminium and cement (up to 5%); and
  • „0–0.5%: waste, water, fuel, chemicals, fertilizer and paper.

Separate from the carbon tax, energy prices are expected to rise significantly (up to 30%) in the near future, due mostly to the replacement of tired assets (generation plant, wires, poles and network infrastructure). The relative energy price increase due to a carbon price is modest by comparison (less than 10%).

Offset mechanisms are to be introduced under the government’s Clean Energy Future Plan ( that compensate households for any expected price rises, as well as a range of assistance packages and grant funding for small business such as the following measures to assist SMEs adjust to a carbon price:

  • „personal tax-free threshold increase;
  • „R&D tax concessions and tax incentives;
  • „instant asset write-off increase from $5,000 to $6,500;
  • „$40m energy-efficiency grants; „$240m fund to help eligible small businesses reduce energy consumption;
  • „$1b Clean Technology Investment program (for capital expenditure on energy-efficient technology in manufacturing, food and foundries) over six years;
  • „support to commercialise emerging low carbon technologies; and
  • „small business support lines.


Small to medium enterprises should view a carbon price as both a material risk and an opportunity to their business, and CEOs, CFOs and boards have a responsibility to be fully aware of the potential impact on their business (products and services), as well as those of their supply chain partners. While there may be no direct compliance obligation, such awareness will better prepare business to develop appropriate strategies to minimise risk and maximise market opportunities. Advisers to SMEs should inform themselves adequately in order to provide a level of confidence to their SME clients about the likely impacts of the carbon tax.

By: Deane BelfieldECO2Sys (carbon advisers to HLB Mann Judd)  Source: Taxation in Australia



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